Forex Strategy: ‘Trend Trading’ Forex Technique A common beginner forex strategy is called “trend trading,” and it is used frequently to extrapolate the future movement of a currency. It’s one of the most widely used forex strategies used by day traders all over the world. So what is trend trading? The idea is simple enough: Using this strategy, a day trader researches the momentum a position is taking (the trend) with the goal of capturing gains based on the asset’s direction. Further, a trader can take a long position when the asset is in an uptrend or a short position when the asset is in a downtrend. In forex trading, this is an extremely useful strategy, as momentum can last for days, weeks, or months. Spotting trends early, in turn, can help you minimize your risk and reap greater profit. Now that you have the basic idea, you’re probably wondering: How can I use trend trading in forex? Well, first things first, you must learn what trends look like. Identifying Forex Trends To become a trend trading expert, you must develop the ability to spot trends in both directions. In the simplest terms, a currency pair in an upward trend consistently makes higher highs AND higher lows. The pair continues rising upwards without falling to the point at which it started. Conversely, currency pairs in a downward trend make a series of lower lows AND lower highs.
This is important to understand. A currency pair that makes higher highs but lower or stable lows isn’t trending. Similarly, lower lows matched with stable or higher highs don’t provide evidence of a trend. You can better recognize these trends by using advanced charting solutions and forex software; this will help you dig deep into the data to see short and long timeframe trends. Your goal in analysis should be to find the strongest trends in the market, and once you’ve determined these strong trends, you can start to think about entering and exiting trending trades. Using Breakouts to Enter the Market There many different ways to enter into the market after you’ve spotted a trend. But for beginning day traders, using a “breakout” offers a simplified solution. Essentially, the trader sets a breakout entry order above the highest value for the pair. An entry order enables the trader to automatically buy a currency, if trend continues upward. Using an entry order with the breakout strategy is advantageous in a few ways. For starters, as long as you set an entry order for a specific breakout value, you will enter into the trade, if the pair continues its upward climb. But also, if the trend discontinues and the pair never reaches above that value, the entry order is deleted. Additionally, entry orders enable you to set up trades that are made automatically, without you having to be in front of a computer. Using Stop Orders to Limit Risk Finally, it’s always important to remember that trends do not last forever; there is a lot of risk in trading forex. And with trend trading, you will never be able to tell the future. That’s why stop orders are
essential when trading trends. Here’s how it works: Once the trend moves upward and you enter into a position, there’s always a chance the trend will move against your position. In these cases, you can set a stop order, which is essentially a value at which you want to exit the trade. In trend trading, one strategy is to set a stop order below the “highest low” in the trend. This minimizes your risk, if the position moves against you. If the trend continues upward, it will likely become profitable, but the trend reverses, you will have a stop in place to limit your risk. Developing forex trading strategy requires in-depth knowledge of the market. If you want to learn more and start becoming a forex trading expert, consider taking a forex trading course. Learn Forex courses from Learn to Trade are designed to help novice traders expand their knowledge, learning new day trading strategies, and minimize their trading risks. Enrol today and start learning forex. Presented By Learn To Trade